Last month, the Court of Appeal released an important judgment concerning the liability limit of motor vehicle lessors for accidents involving their lessees or drivers operating leased vehicles with the lessee's permission.
In British Columbia, the Motor Vehicle Act makes owners, lessees, and lessors of vehicles vicariously liable for accidents committed by drivers of leased vehicles. While a permitted driver or a lessee is liable for the full extant for any damages flowing from the accident, the Motor Vehicle Act limits the liability of lessors. The limit of liability is prescribed in the section 82.1 of the Insurance (Vehicle) Act (the "IV Act") at $1 million (the "Lessor Cap").
In Stroszyn v. Mitsui Sumitomo Insurance Company Limited, 2014 BCCA 431 ["Stroszyn"], the Court of Appeal considered the Lessor Cap for the first time. The question in Stroszyn was what happens if a driver or lessee makes a payment against a judgment where a lessor is also jointly liable? Does the payment by the driver or lessee help satisfy the lessor's $1 million dollar limit? Or, does the $1 million dollar limit continue to exist on top of whatever a driver or lessee pays?
The petitioner, Mr. Stroszyn, was injured when his car was struck by a vehicle owned by Honda Canada Finance Inc. ("Honda"), leased to Mary Chen and driven by her son Jason Chen. At the time of the accident, Ms. Chen held third party liability coverage with ICBC in the amount of $1 million (the "ICBC Policy") that named Ms. Chen and Honda as insureds. Honda also held an excess liability with a policy limit of $9 million (the "Excess Policy").
The parties had settled the damages suffered by Mr. Stroszyn at $1,600,000 prior the commencement of the action. ICBC then paid $1 million under the ICBC policy to Mr. Stroszyn. Mr. Stroszyn argued that Honda should pay the balance of the judgment for two reasons:
- the statutory cap on liability did not apply to the payment made by ICBC or, if it did apply, it applied in excess of the limits of the ICBC policy; and
- the lessee was covered as an insured under the Excess Policy.
In response to the first issue, Honda argued that the $1 million dollar payment was made on behalf of Honda, as an insured, and therefore satisfied it's liability up to the statutory cap; under the principles of vicarious and joint liability a payment made on behalf of one tortfeasor is a payment made by all.
In response to second issue, Honda argued that the excess policy only named Honda as an insured and therefore could not be read to also cover the Chens.
Supreme Court of British Columbia's Decision
The trial judge held that the ICBC payment did not extinguish Honda's liability because it was simply a payment made by one joint tortfeasor towards the total liability of all jointly liable parties. Therefore, Honda remained jointly liable for the remaining $600,000. It appears the trial judge concluded that the Lessor Cap had to reflect monies actually paid by Honda. In this sense, the trial judge characterized the $1 million payment as a payment made solely on behalf of the lessee and not on behalf of Honda.
Regarding the Excess Policy, the trial judge reviewed its language of that of the IV Act. The Excess Policy stated that coverage would only apply to the named insured, and not to any lessee. This exclusion is allowed under the IV Act but it is not binding unless the policy containing it has printed, in a prominent place and conspicuous letting, "This policy contains prohibitions relating to persons or classes of person, exclusions of risks or limits of coverage that are not in the insurance it extends" (the "Required Words").
Despite the Excess Policy not containing the Required Words, the trial judge ruled the policy excluded coverage for the lessee. He noted the policy clearly stated that it only covered the lessor and he concluded that the provisions of the IV Act regulation did not alter the effect of this express policy term.
Court of Appeal's Decision
The Court of Appeal disagreed, holding that the Lessor Cap can be satisfied by any amount paid by a joint tortfeasor. There was no basis to diverge from the common law principle that a payment made by one joint tortfeasor is a payment made by all. Further, the ICBC policy named Honda as an insured. Therefore the $1 million was to be considered a payment made on behalf of Honda and Honda's liability had been extinguished.
Regarding the excess policy, the Court of Appeal held that because the Excess Policy was an optional insurance contract, it was required to extend coverage to every insured in the underlying policy on the same terms and conditions as the underlying certificate or policy. In this case the underlying certificate and policy was issued to Ms. Chen and the only way to exclude her from coverage was to use the Required Words. The Excess Policy did not and so it had to extend to coverage to everyone insured by the underlying ICBC Policy, including Jason Chen.
Implications for the Insurance Industry
The Stroszyn decision is important first because it acknowledges that the Lessor Cap can be satisfied by payments made by other joint tortfeasors. Lessors wishing to minimize their risk should include a term in all lease agreements that obligates the lessee to obtain primary liability coverage of at least $1 million and that names the lessor as an insured. Admittedly, this might be impractical for short term rental contracts but doing it with longer term rentals will generally exclude the lessor from liability above the Lessor Cap for accidents caused by their lessees or other drivers.
In addition, the decision is important because it makes clear that vehicle lessors can exclude lessees under a lessor's excess insurance contract, as long as they follow the requirements set out in the IV Act and use the Required Words. This is a simple step, but Stroszyn illustrates that failing to follow the requirements of the IV Act can defeat the purpose of the Lessor Cap by exposing the lessor to additional liability.
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